DIRECTORS PAY IN THE PRIVATIZED UTILITIES

Abstract

This exploratory paper examines the relationship between the remuneration of the highest paid director and company performance in the privatized utilities. Four conclusions regarding the structure of top directors' pay emerge from the analysis. First, the salary plus bonus remuneration of top directors in the privatized utilities has increased by 12 per cent per annum since 1990. Second, average employee pay in these utilities has grown by about 3.1 per cent per annum over the same period. This suggests that top pay growth in the privatized utilities has outstripped that of the average worker since 1990. Third, the analysis cannot isolate a robust statistical relationship between directors' compensation and measures of pre-dated company performance. Finally, directors' share option dealings can sometimes considerably inflate their overall compensation.
Taken together, these findings implicitly question the current efficacy of remuneration committees for determining boardroom pay in the privatized utilities. One solution, which may enable shareholders more accurately to assess executive performance, is for complete disclosure of all components of directors' pay in the company accounts.